There has been lots of talk in the news recently about using 50-year or intergenerational mortgages to help younger people get on the housing ladder and reduce the gap between wages and house prices. However, mortgages already exist where a parent or grandparent helps the younger generation to buy a property.
The lenders have numerous ways of doing this and they tend to have slightly less catchy names and whilst useful they aren’t suitable for everyone. They are not usually offered by high street lenders which is why it’s important to speak with an adviser who understands the range of options available. Here are the mortgage tools that are currently available to us in order to advise on intergenerational mortgages…
Most lenders will allow a family member to gift them the deposit for their property. However, the family member needs to have the liquid assets for this, and they also must agree that it’s a true gift and can’t be paid back. The young person taking the mortgage still needs to be able to afford the mortgage in their own right.
Joint Borrower/ Sole Proprietor.
These mortgages are only offered by a handful of lenders, but they allow the mortgage to be in joint names but the property ownership to be in a sole name. This means that a family member could go on the mortgage to assist with affordability but would be able to avoid 2nd home ownership which can have implications for stamp duty and capital gains tax. The downside of these mortgages is that if that family member were to pass away then the loan might be unaffordable so I would always advise that life cover is taken if possible (depending on the age and medical history of the client it might not be). Also, some lenders that offer this take the age of the oldest applicant into account and this might restrict the term we can put the mortgage over and potentially make this unaffordable.
Family Assist Mortgages.
These come in many forms. Some allow a family member to deposit savings with the building society for a period of time and that allows the building society to offer a higher-risk mortgage such as a 95% mortgage. Some lenders take a charge on the property of the family member. These mortgages can in some cases offer better rates compared to a traditional 95% mortgage, however, this doesn’t really solve the problem of the person buying the property still needing to afford the mortgage in their own right and also still needing to find a 5% deposit which in some parts of the country can be a significant amount.
I feel that whilst I welcome any reform to the mortgage market that allows more people to buy their homes, I wonder if there is a way to support lenders to offer more of the options that we currently have.